We know from past experience that Daljeet Kohli’s stock picks are not to be taken lightly, especially when it comes to pharma stocks. He delivered a super-duper multi-bagger in Alembic Pharma. Even J. B. Chemicals and Cadila Healthcare are churning out good profits for investors and look set for strong gains.
So, lets’ pay serious attention to Daljeet’s latest pharma stock pick, Shilpa Medicare.
The first point to note is that Shilpa Medicare already enjoys the coveted status of a multi-bagger, having given a 141% YOY return and 158% return over 2 years. These huge gains have come owing to a scorching performance in the recent past. For instance, in the Sept 2013 Quarter, Shipla’s net profit surged 40.93% to Rs 17.63 crore as against Rs 12.51 crore in the Sept 2012 Quarter. Its’ revenue rose 58.07% to Rs 127.61 crore in the quarter ended September 2013 as against Rs 80.73 crore during the previous quarter ended Sept 2012. The same scorching performance was seen in the December 2013 Quarter when Shilpa reported a 110% rise in net profit to Rs 23.08 crore as against Rs 10.98 crore during the previous quarter ended December 2012. The revenue rose 67.29% to Rs 140.46 crore on a YOY basis.
In his detailed report, Daljeet Kohli and his co-author Bhagwan Singh Chaudhary have summed up the entire story in pithy words “Multiple triggers ahead… US story yet to start”.
The bottonline of the report is that Shilpa Medicare is raking in big bucks from its key domestic and foreign customers like Dr Reddy’s Labs, Sun Pharma, Prodotti Chimici Alimentari (Spain), Intas Pharma, Midas Pharma (France), Cipla Ltd, NMS (Italy), Fresenious Kabi etc. These are long-term contracts and will increase over time. The second point is Shilpa Medicare is awaiting approval of the US FDA to its Raichur facility. The third point is that the valuations are not unreasonable given the potential. At the (then) price of Rs 348 (now Rs. 410), Shilpa Medicare is trading at a P/E multiple of 12.7x of FY15E & 9.7x of FY16E.
Daljeet Kohli has valued Shilpa at the target price of Rs 544, which is ~50% upside from current level, and recommended a “Strong BUY”.
Personally, I don’t see merit in ignoring a “Strong Buy” recommendation from Daljeet Kohli. However, given the recent surge in price, I am nibbling on the stock on a SIP basis. I am waiting for a correction to tuck into the stock in a meaningful manner.